Data in Wastewater consultant report raises questions

A more in-depth look at a draft report regarding an analysis of the city's sewer service increases left some questions unanswered and revealed some questions dealing with numbers used in the consultant report.

A more in-depth look at a draft report regarding an analysis of the city's sewer service increases left some questions unanswered and revealed some questions dealing with numbers used in the consultant report.

Ridgecrest City Council is set to have a discussion regarding proposed sewer rate hikes beginning with a increase of 87.8 percent in 2014, from an average rate of $10 to $18.87, or $225 a year, based on a draft report by consultant Red Oak.

The last change in rates was applied to the city's mobile home properties in 1997.

A public hearing is required under California Proposition 218, which allows all ratepayers to weigh in or file written or oral arguments with the city prior to any decisions. City staff is recommending a public hearing for June 5.

The council will decide Wednesday whether to proceed following Red Oak's proposal for a public hearing.

The reasoning behind the proposed increase is to catch up with other cities in the region and better prepare the city for financing a new wastewater treatment facility as recommended.

"In comparison to other communities around us, we are short substantially," said Mayor Dan Clark at a Monday press briefing. "Unfortunately, our council is strapped with a decision that should have been made many, many years ago."

At the top of a number of discrepancies is a reported $3.79 million remaining balance in the Wastewater Enterprise Fund at the beginning of the 2012-2013 fiscal year — or July 1, 2012 — as reported by Red Oak in its analysis.

According to Assistant Finance Director Tess Sloan at a press briefing Monday, the figure was based on a line item in the 2012 Comprehensive Annual Financial Report.

Sloan said the total unrestricted balance for the Wastewater Improvement Fund was $15.6 million as of June 30, 2012, based on the city's Comprehensive Annual Financial Report. The cash balance was more than $7 million.

Among the concerns was the overall fixed overhead cost detailed in the consultant's analysis. Red Oak states that the overhead cost for FY 2013 is $569,874, or 26.4 percent of $2.158 million percent rate revenue needed for the plant.

The other costs go to a breakdown of treatment operations for water flow at $1.16 million, biochemical oxygen demand at $120,552 and total suspended solids operations at $305,263.

Excessive Overhead?

In the 2013 wastewater budget in one of the report's tables, the FY 2013 projected revenue is listed at $2.07 million, something brought up during various emails to the city council by concerned citizens.

The price includes $1.4 million in operating expenses, $255,664 in transfers out of the account and $17,600 in minor capital expenses, with cash-funded capital projects at $355,000.

Resident Stan Rajtora pointed out discrepancies in a condensed breakdown emailed to the public and the city on Monday.

"One thing that the report does not mention is that the FY13 budget contained the highest overhead expenses the city has ever seen," Rajtora said. "Of the total $2,073,000 WWF budget, $928,224 was spent on real tasking, and the remainder, $1,145,006 was spent on overhead of one kind or another. In other words, the WWF is paying an OH rate of 123 percent."

Page 2 of 3 - Rajtora said the breakdown in overhead seemed excessive to him and asked what the city was doing to address the issue.

"Considering that overhead burden it would beneficial for the public to establish a sewer district and get the city out of the sewer business entirely," Rajtora stated. "A more reasonable (overhead) rate of 15 percent would have given a total WWF expenditure of $1,067,457."

The $4.2 million question

Both Rajtora and former Vice Mayor Jerry Taylor called to question the direct absence of any reference to a series of borrowing from the Wastewater Fund totaling approximately $4.2 million between 2006 and 2011.

The report indirectly mentions that the city until now has maintained a sufficient reserve, something Taylor took to issue during an email.

"One of the reasons the reserve of the sewer fund is down is because of the over $4.2 (million) loan to the city that started with inappropriate 'franchise fee' starting back in 2006 for five years," Taylor wrote in an email to city staff and the council.

Borrowing from the wastewater fund has been a controversial subject, with several citizens advocating more transparency or the desire to pay it back.

Currently the city is set to pay the loan back over 30 years at an interest rate of a half (0.5) percent.

Rajtora raised the concern that considering a rate increase, an oversight committee should be established.

"Considering the controversial nature of the wastewater funds over the past few years and the disappearance of funds that were intended for the new wastewater plant, the establishment of a wastewater oversight committee would seem to be a very reasonable expectation of the public," Rajtora stated in his email.

During a press briefing Monday, Mayor Clark said he would do his best to explain the $4.2 million loan as best as he could if asked about it.

Muddled information, plan of attack

Rajtora took to issue the discrepancies and said he found several holes based upon his own study — especially when the report made projections based on the FY 2014 budget.

He cited that the consultant projected 85 percent of budgeted wastewater fund expenses would go toward overhead for FY 2014. Rajtora criticized the consultant making projections before the April 25 and April 27 city budget workshops.

"This is a terrible reflection on the city administration and a direct cause of WWF insolvency," Rajtora stated.

Those sorts of questions are something Clark said he would personally tackle when the discussion item came before the council Wednesday.

During the Monday press briefing, Clark said that when the presentation comes up at council, he would question the consultant.

"I'm going to be asking where did they get these numbers, what kind of administration costs did they put into this," Clark said. "I've got some real questions for the consultants."

Page 3 of 3 - Rajtora brought up inconsistencies in the need for a new wastewater treatment facility, which the consultants project at $46 million in 2013 dollars. Additionally, Rajtora said the city had not adopted a proper sewer repair and replacement plan, something the consultant recommended spending upward of $800,000 per year.

Red Oak, the consultant, suggests in its draft analysis to debt finance the new plant beginning 2018.

"Actual project cost is unknown and estimates are guesses at best," Rajtora wrote. "No real sewer repair or replacement plan has been adopted. A plan or a proposed plan should be available before asking for funding."

Rajtora further stressed the need to bring the Navy and China Lake Naval Air Weapons Station into the picture.

"The Navy generates roughly 30 percent of the effluent that is treated by the (Wastewater Treatment Plant)," Rajtora wrote.

He also said there was a lack of clarity in what the Navy paid in rates or maintenance of the facility.

"The rate revenues have the revenue from the city and the Navy co-mingled to the extent that it is impossible to determine what revenue comes from the city and what revenue comes from the Navy," Rajtora said. "The public has a right to know. The public has a right to expect the Navy pay their fair share of the costs."

Rajtora wrote that any commitment to the financial aspect without cooperation from the Navy made no financial sense.

Human element of a rate hike

Rajtora said the rate hike would be unreasonable in other ways aside from a solid executable plan and the public perception of the council's mistrust with the Wastewater Fund.

"Considering the potential of local Navy employees receiving a pay cut, this is a bad time for a tax/fee increase, especially since it is unnecessary," Rajtora said.

This was something Clark said Monday he had considered, especially among those with a fixed income.

"If they're struggling right now on a limited income and we're going to raise it by 87 percent, what does that do with seniors? That's concerning to me," Clark said.

While Clark initially considered proposing a sliding scale for those at a lower cost, it was ruled out.

Sloan, the assistant finance director, reported that any sliding scale for lower income households was illegal under the Prop. 218 proceedings required for raising utility costs.

"If you are really interested in a sliding scale, the general fund will have to subsidize it," Sloan said.

Clark said that was something the city could not afford to do given its austere budget.